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Japan, long time Asia's leading nation, is struggling to reposition itself for the Asian Century, argues John West.

Much of the world is facing major adjustments as we transition from the American- and Western-dominated 20th century towards the Asian Century. But few countries are challenged as much as Japan, despite its decisive role in laying the foundations for this new century.

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It is sometimes easy to forget the importance of Japan's contribution to the emerging Asian Century, and for how long it was Asia's leader.

This lonely group of islands, sitting off the edge of the East Asian continent, closed itself off from the invading Western colonists from the 17th-19th centuries. But during this period of isolation, its strong domestic economy became Asia's most advanced, and its GDP per capita overtook China.

Japan was finally forced to open to the outside world in the second half of the 19th century. Quickly seeing that it was way behind the West, Japan sought to catchup by importing Western knowledge and technology. This was quite the opposite of a self-contented China.

Development and Westernization of Japan took place at break-neck speed. The total size of Japan's economy quickly overtook China's, despite its relatively minuscule population. A first sign of Japan's rise as a world power was when it defeated Russia in a war of 1904-05.

But this first phase of miracle development would have an unhappy ending. Militarization. Colonization of Asian neighbors. Taking on the West in World War 2, and ultimate destruction by atomic bombs.

Following the end of World War 2, some 70 years ago, Japan would move onto a virtual "economic-war" footing. During the 1950s and 60s, Japan's economy grew at an annual rate of 10%, just as China did for three decades following 1978. Japan's economy then slowed down to the still-respectable rate of 4% in the 1970s and 80s, in a similar way to China's present slowdown.

In the 1980s, Japan was seen as the undisputed leader of Asia. Many saw it as a rival for the US, and the yen as a challenger to the mighty US dollar.

When Japan's was hit by financial crisis, the government reacted too slowly and inadequately. Two lost decades followed, and stagnation continues to this day, together with rapid population aging and now decline.

Moreover, Japan did not see the signs of an Asian Century, which was already taking shape. This would fundamentally refashion Japan's relationships with its Asian neighbors, and would require a new conception of its place in the region and world.

Japan's rapid development was a source of inspiration for other Asian countries -- "yes we can". Its export-driven development also showed the path for economies like Hong Kong, Korea, Singapore, Taiwan and ultimately China. And then its investment in many Asian economies provided the spark that ignited growth, and laid the foundations for the "value chains" that now criss-cross the region.

The rise of the rest of Asia automatically meant that Japan's relative position in the region would decline. But it meant much more than that. Japan is now quickly becoming an Asian "middle power".

Macao and Singapore have overtaken Japan in terms of GDP per capita. The Chinese economy is now bigger than Japan's, and so also is India's in purchasing power parity terms. And enterprises from Korea and Taiwan are fierce competitors of Japan in global markets.

Once-feeble neighbors like Korea and China became more assertive, and sought apologies and compensation for Japan's military activities in the first half of the 20th century. Governments in both countries have pumped up anti-Japanese public opinion, something which is now difficult to hose down. And while the Japanese government has made official apologies for its wartime activities, the actions of too many Japanese political leaders cast doubt on the sincerity of these apologies. The visits to Yasukuni Shrine by Prime Minister Shinzo Abe are just one case in point.

The US, for long time Japan's staunch ally, now sees its relationships with China and India to be at least of equal importance as its alliance with Japan. The US is still the world's "great power", China and India are emerging great powers, while Japan is no longer an existing great power nor an emerging one.

In reshaping its identity as a "middle power" in the Asian Century, Japan can look to the examples of other cases of countries which succeed and survive in their respective neighborhoods. Canada is one such case of a country that balances its dependence on the US, with its own independent cultural and political identity. New Zealand has a similar relationship with Australia.

Switzerland's economy is very closely linked with its French and German neighbors, while it remains staunchly independent and is still not a member of the European Union. Singapore is a remarkable case of prosperity and a strong independent state, surrounded by much poorer and fragile countries like Indonesia, Malaysia and the Philippines.

The UK is another interesting point of comparison. It lost the American War of Independence against its own colony. It ceded its great power status to the US. And yet today, there is no closer relationship than the US/UK one.

All of these cases provide lessons for Japan in redefining its position as an Asian middle power. The first lesson is the necessity of economic strength, which is key to the success of Singapore and Switzerland. On this score, Japan is not performing well. More than two decades of economic stagnation, have weakened the nation. And there is little sign of a revival, despite the ambitions of Abenomics.

Good neighbourly relations is perhaps the second lesson, as evidenced by the cases of Canada and the US, and New Zealand and Australia. As both China and Korea use anti-Japanese sentiment for domestic politics, it may be hard to envision political reconciliation in North East Asia.

But things can change. China could well become a democracy like Korea and Taiwan before it.

In this context, Japan must take the high moral ground through sincere contrition for its wartime activities. This can enable it to influence Chinese and Korean public opinion, especially through the growing people-to-people contacts via rapidly growing tourism and student exchanges. Taking the high moral ground would enable Japan to enjoy support from other Asian countries, and also from Western democracies with which it has been aligned since World War 2.

Alliances with global powers like the US have been and will continue to be critical for Japan's security. But Japan must stop stretching these alliances by its acts which provoke China and Korea. Japan must also be more realistic and understand that the US has many complex calculations to make in its foreign policy making.

In short, Japan requires a sophisticated strategy to adapt and position itself in the emerging Asian Century. But the evidence to date suggests that Japan's present leadership is not up to the task.

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